KIPP BAY AREA SCHOOLS. Independent Auditor s Report and Consolidated Financial Statements For the Year Ended June 30, 2016

Transcription

1 Independent Auditor s Report and Consolidated Financial Statements For the Year Ended June 30, 2016 REGIONAL SUPPORT OFFICE (RSO) KBARE Charter Schools: KIPP BAYVIEW ACADEMY (Bayview) KIPP BRIDGE ACADEMY (Bridge) KIPP EXCELENCIA COMMUNITY PREPARATORY (Excelencia) KIPP HEARTWOOD ACADEMY (Heartwood) KIPP HERITAGE ACADEMY (Heritage) KIPP KING COLLEGIATE (King) KIPP PRIZE PREPARATORY ACADEMY (Prize) KIPP SAN FRANCISCO BAY ACADEMY (SF Bay) KIPP SAN FRANCISCO COLLEGE PREPARATORY (SF College Prep) KIPP SAN JOSE COLLEGIATE (SJC) KIPP SUMMIT ACADEMY (Summit)

2 TABLE OF CONTENTS June 30, 2016 Independent Auditor's Report...1 Consolidated Statement of Financial Position...4 Consolidated Statement of Activities...5 Consolidated Statement of Cash Flows...6 Notes to the Consolidated Financial Statements...7 Local Education Agency Organization Structure...15 Schedule of Instructional Time...17 Schedule of Average Daily Attendance...18 Reconciliation of Annual Financial Report with Audited Financial Statements...19 Schedule of Expenditures of Federal Awards...20 Supplemental Statement of Financial Position By Charter School...21 Supplemental Statement of Activities By Charter School...22 Supplemental Statement of Cash Flows By Charter School...23 Notes to the Supplementary Information...24 Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards...25 Independent Auditor's Report on Compliance for Each Major Program; and Report on Internal Control Over Compliance Required by the Uniform Guidance...26 Independent Auditor's Report on State Compliance...28 Schedule of Findings and Questioned Costs...30 Status of Prior Year Findings and Questioned Costs...31

3 INDEPENDENT AUDITOR S REPORT Board of Directors KIPP Bay Area Schools Oakland, CA Report on the Financial Statements We have audited the accompanying consolidated financial statements of KIPP Bay Area Schools, a California nonprofit public benefit corporation, which comprise the statement of consolidated financial position as of June 30, 2016, and the related consolidated statements of activities, and cash flows for the year then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. -1-

4 Board of Directors KIPP Bay Area Schools We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to on page one present fairly, in all material respects, the consolidated financial position of KIPP Bay Area Schools as of June 30, 2016, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Report on Summarized Comparative Information We have previously audited KIPP Bay Area Schools June 30, 2015 financial statements, and we expressed an unmodified audit opinion on those financial statements in our report dated November 6, In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2015, is consistent, in all material respects, with the audited financial statements from which it has been derived. Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the financial statements. The accompanying supplementary schedules are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. -2-

5 Board of Directors KIPP Bay Area Schools Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued a report dated November 10, 2016 on our consideration of KIPP Bay Area Schools internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering KIPP Bay Area Schools internal control over financial reporting and compliance. VICENTI, LLOYD & STUTZMAN LLP Glendora, CA November 10,

6 CONSOLIDATED STATEMENT OF FINANCIAL POSITION June 30, 2016 With Comparative Totals for June 30, 2015 ASSETS Total Total KBAS KBARE Eliminations CURRENT ASSETS: Cash and cash equivalents $ 57,473,908 $ - $ - $ 57,473,908 $ 37,391,721 Accounts receivable - Federal and State 5,190, ,190,296 4,555,284 Accounts receivable - other 1,862,280 - (305,991) 1,556, ,607 Contributions receivable, net 10,278, ,278,522 8,543,648 Deposits and prepaid expenses 240,233 1, , ,655 Total current assets 75,045,239 1,190 (305,991) 74,740,438 51,556,915 NONCURRENT ASSETS: Contributions receivable, net 16,721, ,721,860 16,385,118 PROPERTY, PLANT AND EQUIPMENT: Building and improvements 10,206, ,206,557 9,796,136 Leasehold improvements 1,275, ,275,325 1,049,896 Furniture and equipment 467, , ,998 Work in progress - 369, ,676 45,039 Less: Accumulated depreciation (1,519,501) - - (1,519,501) (1,057,526) Total property, plant and equipment 10,430, ,676-10,800,041 10,252,543 Total assets $ 102,197,464 $ 370,866 $ (305,991) $ 102,262,339 $ 78,194,576 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts payable $ 3,128,350 $ 370,866 $ (305,991) $ 3,193,225 $ 1,675,663 Accrued liabilities 611, , ,559 Deferred revenue 79, ,781 71,259 Notes payable, current portion 118, , ,722 Total current liabilities 3,937, ,866 (305,991) 4,002,724 2,431,203 LONG-TERM LIABILITIES: Notes payable, net of current portion 4,877, ,877,057 3,990,444 Total long-term liabilities 4,877, ,877,057 3,990,444 Total liabilities 8,814, ,866 (305,991) 8,879,781 6,421,647 NET ASSETS: Unrestricted 66,249, ,249,261 46,689,032 Temporarily restricted 27,133, ,133,297 25,083,897 Total net assets 93,382, ,382,558 71,772,929 Total liabilities and net assets $ 102,197,464 $ 370,866 $ (305,991) $ 102,262,339 $ 78,194,576 The accompanying notes are an integral part of these financial statements. -4-

7 CONSOLIDATED STATEMENT OF ACTIVITIES With Comparative Totals for the Year Ended June 30, 2015 Unrestricted KBAS Temporarily Restricted Total Total KBARE Total 2016 Total 2015 REVENUES State revenue: State aid $ 22,179,683 $ - $ 22,179,683 $ - $ 22,179,683 $ 17,150,904 Other state revenue 4,399,019-4,399,019-4,399,019 2,203,501 Federal revenue 2,038,411-2,038,411-2,038,411 1,818,168 Local revenue: In-lieu property tax revenue 12,390,248-12,390,248-12,390,248 8,990,464 Contribution revenue 8,948,011 14,926,214 23,874,225-23,874,225 22,913,618 Other revenue 469, , , ,106 Net assets released from restriction 12,876,814 (12,876,814) Total revenues 63,302,107 2,049,400 65,351,507-65,351,507 53,454,761 EXPENSES Program services: Educational programs 33,774,929-33,774,929-33,774,929 26,707,422 Support services: General and administrative 9,192,877-9,192,877-9,192,877 7,776,666 Fundraising 774, , , ,374 Total expenses 43,741,878-43,741,878-43,741,878 35,274,462 Change in net assets 19,560,229 2,049,400 21,609,629-21,609,629 18,180,299 Beginning net assets 46,689,032 25,083,897 71,772,929-71,772,929 53,592,630 Ending net assets $ 66,249,261 $ 27,133,297 $ 93,382,558 $ - $ 93,382,558 $ 71,772,929 The accompanying notes are an integral part of these financial statements. -5-

8 CONSOLIDATED STATEMENT OF CASH FLOWS With Comparative Totals for the Year Ended June 30, 2015 Total Total CASH FLOWS from OPERATING ACTIVITIES: KBAS KBARE Eliminations Change in Net Assets $ 21,609,629 $ - $ - $ 21,609,629 $ 18,180,299 Adjustments to reconcile change in net assets to net cash flows from operating activities: Depreciation 461, , ,599 (Increase) and decrease in operating assets: Accounts receivable - Federal and State (635,012) - - (635,012) 630,763 Accounts receivable - other (1,137,671) - 305,991 (831,680) (381,999) Contributions receivable (2,071,616) - - (2,071,616) (4,788,888) Deposits and prepaid expenses 101,420 (1,190) - 100, ,584 Increase and (decrease) in operating liabilities: Accounts payable 1,452, ,866 (305,991) 1,517,562 (166,650) Accrued liabilities 43, , ,102 Deferred revenue 8, ,522 11,593 Net cash flows from operating activities 19,833, ,676-20,202,734 14,254,403 CASH FLOWS from INVESTING ACTIVITIES: Purchase of property, plant, and equipment (639,799) (369,676) - (1,009,475) (369,831) Net cash flows from investing activities (639,799) (369,676) - (1,009,475) (369,831) CASH FLOWS from FINANCING ACTIVITIES: Proceeds from debt 1,000, ,000,000 - Repayment of debt (111,072) - - (111,072) (108,894) Net cash flows from financing activities 888, ,928 (108,894) Net increase in cash and cash equivalents 20,082, ,082,187 13,775,678 Cash and cash equivalents at the beginning of the year 37,391, ,391,721 23,616,043 Cash and cash equivalents at the end of the year $ 57,473,908 $ - $ - $ 57,473,908 $ 37,391,721 SUPPLEMENTAL CASH FLOW DISCLOSURE: Cash paid for interest $ 78,515 $ - $ - $ 78,515 $ 80,693 The accompanying notes are an integral part of these financial statements. -6-

9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activities KIPP Bay Area Schools is part of the nationally acclaimed KIPP network of schools. KIPP schools nationwide successfully help students from educationally underserved communities develop the knowledge, skills, and character needed to succeed in college and the competitive world beyond. KIPP Bay Area Schools operate high-performing, college-preparatory schools in the San Francisco Bay Area. These campuses serve students with the goal of preparing them for success in college and in life. KIPP Bayview Academy KIPP Bridge Academy KIPP Excelencia Community Preparatory KIPP Heartwood Academy KIPP Heritage Academy KIPP King Collegiate KIPP Prize Preparatory Academy KIPP San Francisco Bay Academy KIPP San Francisco College Preparatory KIPP San Jose Collegiate KIPP Summit Academy KBARE is a non-profit corporation which was formed to finance, develop, lease, and maintain certain school facilities for the exclusive support of KIPP Bay Area Schools. Principles of Consolidation The consolidating financial statements include the accounts of KIPP Bay Area Schools and KBARE, a California non-profit public benefit corporation formed exclusively to support KBAS, and its single member limited liability company subsidiary, Seven Trees, LLC. All material intercompany transactions have been eliminated. Basis of Accounting These financial statements have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables and liabilities. Cash and Cash Equivalents KIPP Bay Area Schools defines its cash and cash equivalents to include cash on hand, demand deposits, and liquid investments with original maturities of three months or less. Investments Investments are recorded at fair market value. Both unrealized gains and losses from the fluctuation of market value and realized gains and losses from the sale of investments are reflected in the statement of activities if they are material. Receivables Accounts receivable primarily represent amounts due from federal and state governments as of June 30, Management believes that all receivables are fully collectible; therefore no provisions for uncollectible accounts were recorded. -7-

10 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Property, Plant, and Equipment Property, plant, and equipment purchased or acquired with an original cost of $2,500 or more are reported at historical cost or estimated historical cost. Contributed assets are reported at fair market value as of the date received. Additions, improvements, and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs for repairs and maintenance are expensed as incurred. Depreciation on all assets is provided on a straight-line basis over the various estimated useful lives of the assets which range from three to seven years for equipment, five to fifteen years for leasehold improvements, and forty years for new facility construction. Income Taxes KIPP Bay Area Schools and KBARE are non-profit public-benefit corporations exempt from the payment of income taxes under Internal Revenue Code Section 501(c)(3) and California Revenue and Taxation Code Section 23701d. Accordingly, no provision has been made for income taxes. Management has determined that all income tax positions are more likely than not of being sustained upon potential audit or examination; therefore, no disclosures of uncertain income tax positions are required. KIPP Bay Area Schools and KBARE file informational returns in the U.S. federal jurisdiction, and the state of California. The statute of limitations for federal and California state purposes is generally three and four years, respectively. Seven Trees LLC is considered disregarded and therefore exempt from the payment of income taxes. Additionally, the LLC is in the process of obtaining exemption from the California state LLC fee under California Revenue and Taxation Code. Revenue Recognition Amounts received from the California Department of Education are recognized as revenue by KIPP Bay Area Schools based on the average daily attendance (ADA) of students. Revenue that is restricted is recorded as an increase in unrestricted net assets if the restriction expires in the reporting period in which the revenue is recognized. All other restricted revenues are reported as increases in temporarily restricted net assets. Functional Allocation of Expenses Costs of providing KIPP Bay Area Schools programs and other activities have been allocated on a functional basis in the statement of activities. During the year, such costs are accumulated into separate groupings as either direct or indirect. Indirect or shared costs are allocated among program and support services by a method that best measures the relative degree of benefit. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. -8-

11 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Comparative Totals The financial statements include certain prior year summarized comparative information in total, but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with KIPP Bay Area Schools' financial statements for the year ended June 30, 2015, from which the summarized information was derived. Net Assets Net assets of the organization and changes therein are classified and reported as follows: Unrestricted net assets Net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets Net assets subject to donor-imposed stipulations that will be met either by actions of KIPP Bay Area Schools and/or the passage of time. Permanently restricted net assets Net assets subject to donor-imposed stipulations that they be maintained permanently by KIPP Bay Area Schools. Generally, the donors of these assets permit the use of all or part of the income earned on related investments for general or specific purposes. KIPP Bay Area Schools had no permanently restricted net assets as of June 30, All contributions are considered to be for unrestricted purposes unless specifically restricted by the donor. All donor-restricted contributions made in the year ended June 30, 2016, whose restrictions have been met in this period, are included in the statement of activities as unrestricted revenue. Contributed Assets and Services Contributions of donated non-cash assets are recorded at fair value in the period received. Contributions of donated services that create or enhance non-financial assets or that require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation, are recorded at fair values in the period received. Property Taxes Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are levied on September 1 and are payable in two installments on or before November 1 and February 1. Unsecured property taxes are not a lien against real property and are payable in one installment on or before August 31. The County bills and collects property taxes for all taxing agencies within the County and distributes these collections to the various agencies. The sponsor agency of the School is required by law to provide in-lieu property tax payments on a monthly basis, from August through July. The amount paid per month is based upon an allocation per student, with a specific percentage to be paid each month. Subsequent Events KIPP Bay Area Schools has evaluated subsequent events through November 10, 2016, the date these financial statements were available to be issued. -9-

12 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2: CONCENTRATION OF CREDIT RISK KIPP Bay Area Schools maintains its cash in bank deposit accounts at two financial institutions. Accounts at these institutions are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. KIPP Bay Area Schools has a need to maintain cash balances with a single financial institution in excess of the $250,000 FDIC insured limit. KIPP Bay Area Schools has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. NOTE 3: CONTRIBUTIONS RECEIVABLE Unconditional promises to give expected to be received in one year or less are reported as contributions receivable at net realizable value, which approximates fair value. Unconditional promises to give expected to be received after one year are reported as contributions receivable at fair value using estimated future cash flows discounted by rates ranging from 5.0% to 11.0%. Unconditional promises to give are expected to be realized in the following periods as follows: In one year or less $ 10,749,892 Between one and five years 16,016,626 Greater than five years 2,000,000 Total gross contributions receivable 28,766,518 Less: discount on pledges receivable (877,443) Less: allowance for uncollectible contributions receivable (888,693) Net contributions receivable $ 27,000,382 NOTE 4: PROPERTY, PLANT AND EQUIPMENT A summary of changes in property, plant and equipment is as follows: Beginning Ending Balance Additions Deletions Balance Building and improvements $ 9,796,136 $ 410,421 $ - $ 10,206,557 Leasehold improvements 1,049, ,429-1,275,325 Furniture and equipment 418,996 48, ,984 Construction in progress 45, ,676 (45,039) 369,676 Total 11,310,067 1,054,514 (45,039) 12,319,542 Less: accumulated depreciation (1,057,524) (461,977) - (1,519,501) Property, plant and equipment, net $ 10,252,543 $ 592,537 $ (45,039) $ 10,800,

13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 5: NOTES PAYABLE Through Proposition 1D, KIPP King Collegiate was awarded a total of $8,282,844 for construction of a new school facility. $4,141,422 of the award is in the form of a 30 year note bearing interest at a rate of 2%. During the year ended June 30, 2016, payments of $111,072 were made. The total balance as of June 30, 2016 was $3,995,094. KIPP Bay Area Schools entered into a note agreement with Charter School Growth Fund for $1,000,000 on February 23, The note bears interest at 1% and matures on December 31, The balance as of June 30, 2016 was $1,000,000. Estimated future maturities of the notes are as follows: For the Year Ending June 30, 2017 $ 118, ,397 1,122, , ,767 Thereafter 3,380,825 Total $ 4,995,094 NOTE 6: TEMPORARILY RESTRICTED NET ASSETS For the year ended June 30, 2016, temporarily restricted net assets were received and released as follows: June 30, 2015 Additions Releases June 30, 2016 Regional Support Office: Restricted due to time $ 24,928,766 $ 14,437,440 $ (12,365,824) $ 27,000,382 Restricted giving for a specific school 155, ,774 (510,990) 132,915 Total $ 25,083,897 $ 14,926,214 $ (12,876,814) $ 27,133,

14 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 7: EMPLOYEE RETIREMENT 401(k) Plan KIPP Bay Area Schools has a 401(k) defined contribution plan for those employees who meet the eligibility criteria set forth in the plan. KIPP Bay Area Schools matches employee contributions based upon criteria set forth in the plan up to 4% of compensation. Contributions to the plan for the year ended June 30, 2016 totaled $636,397. State Teachers Retirement System (STRS) Qualified employees of KIPP Bay Area Schools (KIPP Summit Academy and the Regional Support Office) are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the State Teachers Retirement System (STRS). The risks of participating in this multiemployer defined benefit pension plan are different from singleemployer plans because: (a) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, (b) the required member, employer, and state contribution rates are set by the California Legislature and detailed in Teachers Retirement Law, and (c) if KIPP Bay Area Schools chooses to stop participating in the multiemployer plan, it may be required to pay a withdrawal liability to the plan. KIPP Bay Area Schools has no plans to withdraw from this multiemployer plan. Plan Description The School contributes to the State Teachers Retirement System (STRS), a cost-sharing multi-employer public employee retirement system defined benefit pension plan administered by STRS. Plan information for STRS is not publicly available. The plan provides retirement, disability and survivor benefits to beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers Retirement Law. According to the most recently available Comprehensive Annual Financial Report and Actuarial Valuation Report for the year ended June 30, 2015, total STRS plan net assets are $181 billion, the total actuarial present value of accumulated plan benefits is $242 billion, contributions from all employers totaled $2.55 billion, and the plan is 68.5% funded. The School did not contribute more than 5% of the total contributions to the plan. Copies of the STRS annual financial reports may be obtained from STRS, 7667 Folsom Boulevard, Sacramento, CA and Funding Policy Active plan members hired before December 31, 2012 are required to contribute 9.20% of their salary and those hired after are required to contribute 8.56% of their salary. The School is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining -12-

15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 7: EMPLOYEE RETIREMENT the rate are those adopted by the STRS Teachers Retirement Board. Under the 2014 funding plan, employer contributions on compensation creditable to the program will increase every year for the next seven years, up to 19.10% in The required employer contribution rate for year ended June 30, 2016 was 10.73% of annual payroll. The contribution requirements of the plan members are established and may be amended by State statute. KIPP Bay Area Schools (KIPP Summit Academy and the Regional Support Office) contributions to STRS for each of the last three fiscal years are as follows: Year Ended Required Percent June 30, Contribution Contributed 2014 $ 164, % 2015 $ 184, % 2016 $ 233, % NOTE 8: OPERATING LEASES KIPP Bay Area Schools leases its facilities under several lease agreements with expirations ranging from July 1, 2015 to June 30, Lease expense under these agreements for the year ended June 30, 2016 was $1,011,344. Future minimum lease payments are as follows: For the Year Ending June 30, 2017 $ 875, , ,991 Total $ 1,756,413 NOTE 9: CONTINGENCIES KIPP Bay Area Schools has a commercial card line of credit with a financial institution for up to $600,000. This line of credit is associated with KIPP Bay Area Schools credit cards and is settled monthly. The line of credit expires on July 5,

16 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9: CONTINGENCIES KIPP Bay Area Schools has a revolving line of credit with a financial institution for $1,000,000. It carries a variable interest rate of prime plus 1.75% with a 5% minimum rate and was renewed on July 5, 2016 for $3,000,000. This line of credit is collateralized with KIPP Bay Area Schools accounts, inventory, and equipment. KIPP Bay Area Schools has no amounts outstanding under this line of credit as of June 30, KIPP Bay Area Schools has received state and federal funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could generate disallowances under terms of the grants, it is believed that any required reimbursement would not be material. -14-

17 SUPPLEMENTARY INFORMATION

18 LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE KIPP Bay Area Schools is a tax exempt non-profit, public-benefit corporation that was established in KIPP Bay Area Schools manages eleven charter schools. The charter school sponsors and charter school numbers are as follows: KIPP Bayview Academy (Bayview) Charter Number: 0549 Sponsor: San Francisco Unified School District, established July 2003 KIPP Bridge Academy (Bridge) Charter Number: 0938 Sponsor: Oakland Unified School District, established June 2007 KIPP Excelencia Community Preparatory (Excelencia) Charter Number: 1735 Sponsor: Redwood City School District, established July 2015 KIPP Heartwood Academy (Heartwood) Charter Number: 0628 Sponsor: Alum Rock Union Elementary School District, established June 2004 KIPP King Collegiate (King) Charter Number: 0880 Sponsor: San Lorenzo Unified School District, established June 2007 KIPP San Francisco Bay Academy (SF Bay) Charter Number: 0551 Sponsor: San Francisco Unified School District, established February 2003 KIPP San Francisco College Preparatory (SF College Prep) Charter Number: 1502 Sponsor: San Francisco Unified School District, established July 2013 KIPP San Jose Collegiate (San Jose) Charter Number: 0976 Sponsor: East Side Union High School District, established June 2008 KIPP Summit Academy (Summit) Charter Number: 0524 Sponsor: San Lorenzo Unified School District, established June 2003 KIPP Heritage Academy (Heritage) Charter Number: 1608 Sponsor: Franklin-McKinley Elementary School District, established August 2014 KIPP Prize Preparatory Academy (Prize) Charter Number: 1609 Sponsor: Alum Rock Union Elementary School District, established August

19 LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE Board of Directors Name Office Current Term Expires Lauren Dutton Board Chair June 2014 (eligible through 2017) Chuck Daggs Board Vice Chair June 2016 (eligible through 2016) Jay Allen Member June 2015 (eligible through 2021) John Philip Coghlan Member June 2014 (eligible through 2017) Andrea C. Evans Member June 2016 (eligible through 2022) Kevin Eyres Member June 2017 (eligible through 2023) Doris Fisher Member Indefinite Laura Fisher Member June 2016 (eligible through 2016) Cheryl Frank Member June 2017 (eligible through 2023) Abe Friedman Member June 2015 (eligible through 2021) Ron Gonzales Member June 2016 (eligible through 2016) Sukey Grousbeck Member June 2016 (eligible through 2016) Andrea Higuera-Ballard Member June 2016 (eligible through 2022) Ken Hirsch Member June 2015 (eligible through 2021) Tom Holland Member June 2015 (eligible through 2021) Tonia Karr Member June 2016 (eligible through 2022) Rob Lake Member June 2018 (eligible through 2024) Katie Paige Member June 2016 (eligible through 2022) Satya Patel Member June 2014 (eligible through 2017) David Paulson Member June 2016 (eligible through 2016) Jenny Shimizu Risk Member June 2015 (eligible through 2021) Lisa Sobrato Sonsini Member June 2016 (eligible through 2022) Grace Voorhis Member June 2015 (eligible through 2021) Ted Williams Member June 2016 (eligible through 2022) Chris Young Member June 2018 (eligible through 2024) Name Beth Sutkus Thompson Kendra Ferguson April Chou Marie Huxley Prabhu Reddy Kati Vastola Administration Title Chief Executive Director Chief People Officer Chief Growth & Operating Officer Chief of Schools Director of Finance/Treasurer Executive Associate and Board Secretary -16-

20 SCHEDULE OF INSTRUCTIONAL TIME Instructional Minutes Instructional Requirement Actual Days Status Transitional Kindergarten Excelencia 36,000 63, In compliance Kindergarten Excelencia 36,000 79, In compliance Grade 1 Excelencia 50,400 74, In compliance Grade 4 Excelencia 54,000 74, In compliance Grade 5 Bayview 54,000 64, In compliance Bridge 54,000 63, In compliance Heartwood 54,000 70, In compliance Heritage 54,000 64, In compliance Prize 54,000 77, In compliance SF Bay 54,000 70, In compliance Summit 54,000 66, In compliance Grade 6 Bayview 54,000 64, In compliance Bridge 54,000 61, In compliance Heartwood 54,000 70, In compliance Heritage 54,000 64, In compliance Prize 54,000 77, In compliance SF Bay 54,000 70, In compliance Summit 54,000 65, In compliance Grade 7 Bayview 54,000 64, In compliance Bridge 54,000 64, In compliance Heartwood 54,000 70, In compliance SF Bay 54,000 68, In compliance Summit 54,000 70, In compliance Grade 8 Bayview 54,000 65, In compliance Bridge 54,000 68, In compliance Heartwood 54,000 70, In compliance SF Bay 54,000 68, In compliance Summit 54,000 71, In compliance Grade 9 King 64,800 73, In compliance SF College Prep 64,800 75, In compliance San Jose 64,800 75, In compliance Grade 10 King 64,800 73, In compliance SF College Prep 64,800 74, In compliance San Jose 64,800 75, In compliance Grade 11 King 64,800 71, In compliance SF College Prep 64,800 74, In compliance San Jose 64,800 75, In compliance Grade 12 King 64,800 73, In compliance San Jose 64,800 75, In compliance See independent auditor s report and the notes to the supplementary information. -17-

21 SCHEDULE OF AVERAGE DAILY ATTENDANCE Second Period Report Annual Report Classroom Classroom Charter School Grade Levels Based Total Based Total Bayview Grades 4 through Grades 7 through ADA Totals Bridge Grades 4 through Grades 7 through ADA Totals Excelencia Grades TK/K through Grades 4 through ADA Totals Heartwood Grades 4 through Grades 7 through ADA Totals Heritage Grades 4 through ADA Totals King Grades 9 through ADA Totals Prize Grades 4 through ADA Totals SF Bay Grades 4 through Grades 7 through ADA Totals SF College Prep Grades 9 through ADA Totals San Jose Grades 9 through ADA Totals Summit Grades 4 through Grades 7 through ADA Totals ADA Totals 3, , , , See independent auditor s report and the notes to the supplementary information. -18-

22 RECONCILIATION OF ANNUAL FINANCIAL REPORT WITH AUDITED FINANCIAL STATEMENTS SF College Bayview Bridge Excelencia Heartwood Heritage King Prize SF Bay Prep San Jose Summit Annual Financial and Budget Report Fund Balances (Net Assets) $ 1,385,212 $ 999,221 $ 600,000 $ 3,778,678 $ 1,120,002 $ 6,399,397 $ 803,694 $ 1,303,682 $ 621,095 $ 1,812,543 $ 2,403,349 Adjustments and Reclassifications: Increasing (Decreasing) the Fund Balance (Net Assets): Cash and cash equivalents 97, , , , , , ,452 79, , ,401 Accounts receivable - Federal and State 611, ,010 (750,051) 274,394 (193,887) 943,959 (374,089) 594, , , ,125 Accounts receivable - other 15, , ,318 15, ,887 15, ,613 7,214 12,083 13,546 12,393 Intracompany receivables , Prepaid Assets 14,173 26,018 6,374 6,775-9,522 6,917 17,795 13,010 19,345 29,487 Capital Assets (8,022) 15,706-65,489 - (7,494) 118,029 41,231 36,876 26,943 6,038 Accounts Payable 73, ,731 (75,409) 895, ,410 (77,385) (184,757) (6,778) (313,209) 854, ,677 Accrued Liabilities (4,124) (6,233) (5,493) (6,129) (3,153) (8,573) (4,175) (8,809) (4,364) (9,223) (1,040) Intracompany payables (619,016) (806,426) (3,052) (1,050,242) (875,257) (1,116,879) - (660,215) (181,293) (1,217,384) (887,015) Deferred revenue - - (4,192) (3,712) - (144) (14,722) - (382) (7,968) (48,661) Notes payable (4,650) Net Adjustments and Reclassifications 180, , , , , , ,012 56, , ,405 Audited Financial Statement Fund Balances (Net Assets) $ 1,565,820 $ 1,639,662 $ 723,939 $ 4,218,811 $ 1,120,002 $ 6,589,138 $ 1,027,287 $ 1,408,694 $ 677,600 $ 2,106,258 $ 2,528,754 See independent auditor s report and the notes to the supplementary information. -19-

23 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Federal Grantor/Pass-Through Grantor/Program or Cluster Title Federal CFDA Number Pass-Through Entity Identifying Number RSO Bayview Bridge Excelencia Heartwood Heritage King Prize SF Bay SF College Prep San Jose Summit Total Expenditures U.S. Department of Education: Pass-Through California Department of Education: Title I, Part A, Basic Grants $ - $ 100,276 $ 86,571 $ 70,764 $ 137,441 $ 62,521 $ 127,572 $ 75,686 $ 118,769 $ 79,985 $ 123,660 $ 106,637 $ 1,089,882 Title II - Improving Teacher Quality ,363 1,576 1,065 2,102 1,025 2,300 1,018 1,737 1,246 2,092 1,783 17,307 Title III - Limited English Proficiency ,938 3,284 8,113 11,135 6,358 5,160 7,711 10,879 2,291 4,015 8,898 70,782 State Charter School Facilities Incentive Grant D ,852-63, ,657-74,160 51, ,104 Advanced Placement Test Fee Program B N/A , ,152-23,370 Supporting Effective Educator Development D N/A , ,000 Special Education: IDEA Basic Local Assistance Entitlement, Part B, Section , ,848 Special Education Mental Health A N/A 139, ,118 Total U.S. Department of Education 548, , ,283 79, ,641 69, ,250 84, ,042 83, , ,790 2,038,411 Total Expenditures of Federal Awards $ 548,966 $ 104,577 $ 125,283 $ 79,942 $ 214,641 $ 69,904 $ 187,250 $ 84,415 $ 156,042 $ 83,522 $ 215,079 $ 168,790 $ 2,038,411 See independent auditor s report and the notes to the supplementary information. -20-

24 SUPPLEMENTAL STATEMENT OF FINANCIAL POSITION BY CHARTER SCHOOL June 30, 2016 ASSETS RSO Bayview Bridge Excelencia Heartwood Heritage King Prize SF Bay SF College Prep San Jose Summit Eliminations Total CURRENT ASSETS: Cash and cash equivalents $ 35,529,221 $ 1,708,123 $ 2,178,666 $ 358,495 $ 5,093,230 $ 1,717,562 $ 1,922,585 $ 677,944 $ 1,776,483 $ 698,689 $ 3,226,916 $ 2,585,994 $ - $ 57,473,908 Accounts receivable - Federal and State 745, , , , , , ,959 71, , , , ,125-5,190,296 Accounts receivable - other 1,082,198 15, , ,318 15, ,887 15, ,613 7,214 12,083 13,546 12,393-1,862,280 Contributions receivable, net 10,278, ,278,522 Intracompany receivables 7,295, , (7,416,779) - Deposits and prepaid expenses 76,621 14,173 26,018 6,374 6,775 14,196 9,522 6,917 17,795 13,010 19,345 29, ,233 Total current assets 55,006,936 2,348,824 2,623, ,085 5,390,190 2,089,484 2,891,365 1,043,245 2,395,614 1,137,971 3,517,843 3,204,999 (7,416,779) 75,045,239 NONCURRENT ASSETS: Contributions receivable, net 16,721, ,721,860 PROPERTY, PLANT AND EQUIPMENT: Building and improvements 2,500 32, ,024, , , ,206,557 Leasehold improvements 175,187 2,371 1, ,177-8,301-80, ,914 5, ,571-1,275,325 Furniture and equipment 39,132 35,859 22,631-24,737 3, ,415 79,667 22,536 21,639 79,668 16, ,984 Work in progress Less: Accumulated depreciation (161,364) (25,730) (8,517) - (107,370) (1,015) (990,618) (36,543) (26,662) (20,475) (19,960) (121,247) - (1,519,501) Total property, plant and equipment 55,455 44,925 15, ,544 2,029 9,164, ,696 76, ,078 68, ,980-10,430,365 Total assets $ 71,784,251 $ 2,393,749 $ 2,639,168 $ 812,085 $ 5,584,734 $ 2,091,513 $ 12,055,713 $ 1,230,941 $ 2,472,190 $ 1,253,049 $ 3,585,871 $ 3,710,979 $ (7,416,779) $ 102,197,464 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts payable $ 457,293 $ 204,789 $ 186,847 $ 75,409 $ 305,840 $ 93,101 $ 345,885 $ 184,757 $ 394,472 $ 389,410 $ 245,038 $ 245,509 $ - $ 3,128,350 Accrued liabilities 550,365 4,124 6,233 5,493 6,129 3,153 8,573 4,175 8,809 4,364 9,223 1, ,681 Intracompany payables - 619, ,426 3,052 1,050, ,257 1,116, , ,293 1,217, ,015 (7,416,779) - Deferred revenue ,192 3, , ,968 48,661-79,781 Notes payable, current portion , ,037 Total current liabilities 1,007, , ,506 88,146 1,365, ,511 1,589, ,654 1,063, ,449 1,479,613 1,182,225 (7,416,779) 3,937,849 LONG-TERM LIABILITIES: Notes payable, net of current portion 1,000, ,877, ,877,057 Total long-term liabilities 1,000, ,877, ,877,057 Total liabilities 2,007, , ,506 88,146 1,365, ,511 5,466, ,654 1,063, ,449 1,479,613 1,182,225 (7,416,779) 8,814,906 NET ASSETS: Unrestricted 42,643,296 1,565,820 1,639, ,939 4,218,811 1,120,002 6,589,138 1,027,287 1,408, ,600 2,106,258 2,528,754-66,249,261 Temporarily restricted 27,133, ,133,297 Total net assets 69,776,593 1,565,820 1,639, ,939 4,218,811 1,120,002 6,589,138 1,027,287 1,408, ,600 2,106,258 2,528,754-93,382,558 Total liabilities and net assets $ 71,784,251 $ 2,393,749 $ 2,639,168 $ 812,085 $ 5,584,734 $ 2,091,513 $ 12,055,713 $ 1,230,941 $ 2,472,190 $ 1,253,049 $ 3,585,871 $ 3,710,979 $ (7,416,779) $ 102,197,464 See independent auditor s report and the notes to the supplementary information. -21-

25 SUPPLEMENTAL STATEMENT OF ACTIVITIES BY CHARTER SCHOOL UNRESTRICTED NET ASSETS RSO Bayview Bridge Excelencia Heartwood Heritage King Prize SF Bay REVENUES SF College Prep San Jose Summit Eliminations Total State revenue: State aid $ 1,960,560 $ 447,571 $ 1,849,676 $ 990,107 $ 2,694,344 $ 1,345,046 $ 4,283,792 $ 1,436,513 $ 559,760 $ 924,248 $ 3,021,688 $ 2,666,378 $ - $ 22,179,683 Other state revenue 62, , , , , , , , , , ,195-4,399,019 Federal revenue 548, , ,283 79, ,641 69, ,250 84, ,042 83, , ,790-2,038,411 Local revenue: In-lieu property tax revenue - 1,812, , , , , , ,778 2,293,296 1,884,447 1,699, ,465-12,390,248 Contribution revenue 6,335,647 38, ,866 1,291,645 45, ,386 74, ,508 35, ,144 57,777 87,344-8,948,011 Other revenue 4,534,058 3,439 7,586 15,038 72,828 19,732 71,922 25,130 4,844 29,390 50, ,123 (4,487,536) 469,921 Net assets released from restriction 12,876, ,876,814 Total revenues 26,318,526 3,086,103 3,217,127 3,235,882 4,318,370 2,327,247 6,125,977 2,208,242 3,668,621 3,623,789 5,443,464 4,216,295 (4,487,536) 63,302,107 EXPENSES Program services: Educational programs 5,712,584 2,161,444 2,112,952 2,012,475 2,527,468 1,410,067 4,576,387 1,301,681 2,667,829 3,120,329 3,300,699 2,871,014-33,774,929 Support services: General and administrative 5,672, , , , , ,504 1,123, , , , , ,920 (4,487,536) 9,192,877 Fundraising 708,027 5,287 5,597 5,155 5,926 3,234 10,353 3,015 6,279 5,959 7,894 7, ,072 Total expenses 12,092,811 2,746,234 2,800,762 2,515,627 3,359,900 2,040,805 5,710,418 1,968,863 3,381,890 3,722,045 4,269,779 3,620,280 (4,487,536) 43,741,878 Change in unrestricted net assets 14,225, , , , , , , , ,731 (98,256) 1,173, ,015-19,560,229 TEMPORARILY RESTRICTED NET ASSETS Local revenue: Contribution revenue 14,926, ,926,214 Net assets released from restriction (12,876,814) (12,876,814) Change in temporarily restricted net assets 2,049, ,049,400 Change in net assets 16,275, , , , , , , , ,731 (98,256) 1,173, ,015-21,609,629 Beginning net assets 53,501,478 1,225,951 1,223,297 3,684 3,260, ,560 6,173, ,908 1,121, , ,573 1,932,739-71,772,929 Ending net assets $ 69,776,593 $ 1,565,820 $ 1,639,662 $ 723,939 $ 4,218,811 $ 1,120,002 $ 6,589,138 $ 1,027,287 $ 1,408,694 $ 677,600 $ 2,106,258 $ 2,528,754 $ - $ 93,382,558 See independent auditor s report and the notes to the supplementary information. -22-

26 SUPPLEMENTAL STATEMENT OF CASH FLOWS BY CHARTER SCHOOL RSO Bayview Bridge Excelencia Heartwood Heritage King Prize SF Bay SF College Prep San Jose Summit Eliminations Total CASH FLOWS from OPERATING ACTIVITIES: Change in net assets $ 16,275,115 $ 339,869 $ 416,365 $ 720,255 $ 958,470 $ 286,442 $ 415,559 $ 239,379 $ 286,731 $ (98,256) $ 1,173,685 $ 596,015 $ - $ 21,609,629 Adjustments to reconcile change in net assets to net cash flows from operating activities: Depreciation 37,236 14,849 7,867-29,359 1, ,246 36,542 15,608 18,140 8,856 19, ,977 (Increase) and decrease in operating assets: Accounts receivable - Federal and State (240,952) (87,192) 66,975 (222,898) 73,721 (89,396) (258,752) 20,485 (207) 45, ,258 (68,119) - (635,012) Accounts receivable - other (1,031,911) (14,987) (103,729) (131,318) (12,881) 5,258 (7,110) 71,800 (7,214) 111,496 (11,469) (5,606) - (1,137,671) Contributions receivable (2,071,616) (2,071,616) Intracompany receivable (4,386,436) , ,060,313 - Deposits and prepaid expenses 53,311 2,745 (5,418) 4,827 17,630 5,860 1,251 4,186 38,582 (4,144) 1,519 (18,929) - 101,420 Increase and (decrease) in operating liabilities: Accounts payable 257, , ,873 65,610 (126,823) 76, , , , ,530 38, ,489-1,452,687 Accrued liabilities 80,516 (2,346) (4,506) (5,807) (8,199) (2,007) (4,358) (119) (963) (1,540) (2,254) (5,295) - 43,122 Intracompany payable - 364, ,632 (76,366) 602, , , ,855 95, , ,206 (4,060,313) - Deferred revenue ,192 1,254 (4,712) (7,074) 12,241 - (912) 4,624 (1,091) - 8,522 Net cash flows from operating activities 8,972, , , ,495 1,534, ,376 1,423, , , ,052 1,891,293 1,186,929-19,833,058 CASH FLOWS from INVESTING ACTIVITIES: Purchase of property, plant, and equipment (15,014) (398) (192) - (76,959) - (265,752) (144,571) (54,397) (46,683) (27,112) (8,721) - (639,799) Net cash flows from investing activities (15,014) (398) (192) - (76,959) - (265,752) (144,571) (54,397) (46,683) (27,112) (8,721) - (639,799) CASH FLOWS from FINANCING ACTIVITIES: Proceeds from issuance of debt 1,000, ,000,000 Repayments of debt (111,072) (111,072) Net cash flows from financing activities 1,000, (111,072) ,928 Net increase (decrease) in cash and cash equivalents 9,957, , , ,495 1,457, ,376 1,046, , , ,369 1,864,181 1,178,208-20,082,187 Cash and cash equivalents at the beginning of the year 25,571, ,801 1,381,799-3,635, , , , ,320 1,362,735 1,407,786-37,391,721 Cash and cash equivalents at the end of the year $ 35,529,221 $ 1,708,123 $ 2,178,666 $ 358,495 $ 5,093,230 $ 1,717,562 $ 1,922,585 $ 677,944 $ 1,776,483 $ 698,689 $ 3,226,916 $ 2,585,994 $ - $ 57,473,908 SUPPLEMENTAL CASH FLOW DISCLOSURE: Cash paid for interest $ - $ - $ - $ - $ - $ - $ 78,515 $ - $ - $ - $ - $ - $ - $ 78,515 See independent auditor s report and the notes to the supplementary information. -23-

27 NOTES TO THE SUPPLEMENTARY INFORMATION NOTE 1: PURPOSE OF SCHEDULES Schedule of Instructional Time This schedule presents information on the amount of instructional time offered by each charter school and whether it complied with the provisions of the Education Code. Schedule of Average Daily Attendance Average daily attendance is a measurement of the number of pupils attending classes at each charter school. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to charter schools. This schedule provides information regarding the attendance of students at various grade levels. Reconciliation of Annual Financial Report with Audited Financial Statements This schedule provides the information necessary to reconcile the net assets of the charter schools as reported on the Annual Financial Report form to the audited financial statements. Schedule of Expenditures of Federal Awards The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of the School under programs of the federal governmental for the year ended June 30, This Schedule is presented on the accrual basis of accounting and in accordance with the requirements of the Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of operations of the School, it is not intended to and does not present the financial position, changes in net assets, or cash flows of the School. Indirect Cost Rate KIPP Bay Area Schools has elected not to use the 10-percent de minimis indirect cost rate allowed under the Uniform Guidance. Supplemental Financial Statements By Charter School These statements report the financial position, activities and cash flows for each of KIPP Bay Area s charter schools as is required to be reported for the various sponsoring agencies. -24-